It was a chilly autumn night in the suburbs of Denver. Down a filthy alley, strewn with rotting Chipotle burritos and prairie dog carcasses, walks a man. He’s a family man, an ordinary man, indistinguishable from other Coloradans in his Columbia fleece, khaki cargo shorts and Nike hiking shoes, except that no other locals would dare walk the streets of Sheridan so late at night.

A vagrant rises suddenly from a pile of leaking garbage bags. His shadowy, hooded silhouette is shrouded in darkness, except for a dim glow coming from a reflector stripe on his own Nike hiking shoes. He shuffles over to the family man. He stops. He unzips the removable hood from his North Face fleece and tucks it into an Eddie Bauer fanny pack. Slowly he lifts his face into the pale moonlight. The family man gasps, petrified. The vagrant has but a single, solitary eye!

“It’s called the .44 Magnum because when people find out they’ve been ripped off, they’ll buy a .44 Magnum and shoot themselves in the head,” he says.

“Good God!” cries the family man. “Okay, I’ll do it. I’ll do it! Just leave my family alone!”

“Send the proceeds to me by Western Union,” says the one-eyed man.

“Oh, and one more thing” says the one-eyed man, “Call me Perello!”

With that, the one-eyed man vanished back into the leaking pile of garbage bags.

The Legend of Robert Perello

This, dear reader, is how we believe this story began. But nobody knows for sure. You see, the only clues we have come from sketchy accounts in old news reports. Thus, for example, we have this mysterious excerpt from a federal fraud complaint filed by the Securities and Exchange Commission on October 18, 2012:

To date, the Commission has not been able to identify or locate Perello. Regardless of whether Perello exists or had any role in the fraudulent scheme, Lunn is liable for his own conduct.

This is the only known reference to the one-eyed Perello. The “Lunn” mentioned here is Geoffrey H. Lunn of Sheridan Colorado, the family man in our story. The federal complaint goes on to accuse Lunn of running a year-long $5.77 million investment scam. The scam itself is rather ho-hum. It has the usual features: (1) false promises of huge “guaranteed” returns; (2) claimed affiliation with major banking and government institutions; (3) ponzi-like payments to past investors; and (4) the use of investment funds for personal expenses. This would be a typical investment scam, were it not for Perello’s chilling involvement. As the SEC’s federal complaint explains:

Lunn testified before the Commission’s staff that an individual using the alias Robert Perello (“Perello”) created Dresdner and the Magnum Program. According to Lunn, Perello told Lunn in the fall of 2010 that he named Dresdner’s program the Magnum Program because “when people found out they’d been ripped off, they would buy a .44 Magnum and shoot themselves in the head.” Lunn claimed that Perello threatened to kill him and his family if he did not cooperate in the Dresdner scheme and that he was acting at Perello’s direction when he participated in the fraud. Lunn testified that he gave the cash he withdrew from the investors’ funds and the Western Union transfers to Perello.

Lunn was the only person associated with Dresdner who claimed to have met Perello in person. Lunn said that Perello’s distinguishing characteristic is that he has only one eye. Lunn testified that he did not know Perello’s true identify or current whereabouts. Lunn also testified that he did not report the alleged death threats to the police or any other authorities at the time that they were made.

To date, the Commission has not been able to identify or locate Perello…

SEC v. Lunn, Bishop and Curry, C.A. No. 12-cv-02767 (D. Colo. 2012).

Just who is this Perello? Let’s dig deeper.

The SEC’s On-The-Record Inquisition

Everything we know about the one-eyed Perello comes from the alleged “testimony” of Lunn before the SEC. But what was this so-called testimony? And just how did the SEC go about getting it? The answer, dear reader, is not for the faint of heart. From a murky cauldron of statutory authority, the SEC has harnessed the dark power to summon unwilling persons into the very bowels of the SEC headquarters for what can only be described as an Inquisition! This secretive process is known to the outside world only by a grotesque euphemism: the “on-the-record interview.” The procedure is conducted at a long table, in a windowless room, with two SEC clergy from a cryptic internal coven known simply as “Enforcement.”

The witness huddles with his attorney across from Enforcement. The witness is sworn in, but no Bible is used. At the head of the table sits a mysterious person known only as The Stenographer. The stenographer’s role in this macabre affair is to attempt to type up every word uttered by every person, in real time, on a tiny keyboard invented in 1830 by a reclusive German named Karl von Drais. The witness will be flat-out dumbfounded to see that this ancient, ritual recording method is still in use. He may even chuckle nervously at the quaint set up. But any smile he manages to crack will fall from his face, and die on the floor, when he’s told that a copy of the transcript will cost him $650.

Another Drais invention, also still in wide use in its original form

During the proceedings, everyone at the table suffers excruciating separation anxiety because repeated consultation of smart phones is forbidden. And at the scheduled lunch break, for reasons unknown, each participant will always eat something terrible from the old train station next door, with debilitating guilt and regret to follow. As the afternoon drones on, any attorneys in attendance will re-live, in their mind’s eye, the most terrifying day from their past. The day they decided to go to law school.

It was within this morbid context that the unthinkable happened.

Asked about his investment program Lunn said, under oath:

“It was a con, basically.”

Lunch during a recent on-the-record interview

The confession was stunning. What tortures must have been brought to bear on Lunn? Thumb screws? The rack? Or worse, the leading question? This confession is so startling, so damning, it could wake up even the sleepiest of defense attorneys. Even a dead defense attorney. Indeed, even a defense attorney who wolfed down the Ricotta-Monsta Calzone at lunch from the pizzeria off Track 6. One can easily picture the defense attorney’s panic, as his mind raced, toying perhaps with the idea that the word “basically” might offer some wiggle room. But it looked hopeless. The witness had just nailed shut his own casket. Or did he?

Perello Forced Me to Do it. Every Day. For a Year.

The defense Lunn seems to be shooting for is called “duress,” at least in criminal law. Duress can excuse criminal conduct where the actor was “under an unlawful threat of imminent death or serious bodily injury.” U.S. v. Bailey, 444 U.S. 394, 409 (1980). Here’s an example of a typical fact pattern where the defense is used.

A man drives into a cemetery at 2:15 a.m. with three passengers. The passengers ask where the driver is taking them. The driver ignores them, drives up to a large gravestone, and then pulls a revolver from his jacket. At gun point, he orders the passengers to get out and to retrieve shovels from the trunk. They comply. He orders them to dig up the grave or they will be shot. One refuses and is shot dead. The other two dig rapidly. When they reach the casket an hour later, they pry off the top. A horrid stench flows out. The driver grabs a bunch of wilted flowers from a nearby grave, tosses them into the open casket, and says “Happy Birthday Mom!” They close up the casket, fill in the hole, and are apprehended two hours later at a Taco Bell drive through. At the criminal trial, the two surviving passengers go scot-free, courtesy of the duress defense. The driver is convicted of murder, grave desecration, trespassing, theft and assault with a dangerous weapon, none of which looks too good on his FINRA BrokerCheck report. The dead passenger’s soul wanders the grave yard to this day.

The duress defense is narrow, however. “If there was a reasonable, legal alternative to violating the law, a chance both to refuse to do the criminal act and also to avoid the threatened harm, the defense will fail.” Id. at 410. Current formulations of the duress defense, as in U.S. v. Miller, 59 F.3d 417 (3d Cir. 1995), typically require proof of three elements:

(1) an immediate threat of death or serious bodily injury;

Threatening to murder a man and his family would seem to qualify. So far, so good Lunn!

(2) a well-grounded fear that the threat will be carried out;

Perello has only one eye! Just a single, solitary eye! What more could be needed for a well-grounded fear! On second thought, Columbo also had only one eye.But Perello has one eye and a program called .44 Magnum. Maybe that suffices.

(3) no reasonable opportunity to escape the threatened harm.

No reasonable opportunity? As in none? Here we stumble a bit. How can we prove this element? Someone call Alan Dershowitz stat!

Element three is a problem. In Miller, for example, the defendant claimed she assisted her husband in a bank fraud only because her husband had “threatened her, her brother, and her mother” and he had ties to organized crime that allowed him to harm people even though he was incarcerated. This was not sufficient to raise a duress defense, said the court, because the husband was in jail many miles away, and in any event, “there was ample opportunity for defendant to communicate her claims of duress to law enforcement.”

If faced with a similar legal test, Lunn may indeed be doomed. His scheme allegedly lasted one year, from February 2010 to February 2011. It also allegedly involved at least 70 investors throughout the United States and several foreign countries. It is hard to imagine an “immediate threat of death” lasting for a year “with no reasonable opportunity to escape the threatened harm.” Unless Perello followed Lunn around every day for a year (keeping a close “eye” on him), the defense seems weak. Also weak, it must be said, is that Robert Perello seems not to exist. Only Lunn claims to have met him. The SEC clearly doubts Perello’s existence and prefers instead to relegate him to the status of mere legend in its maniacal crusade to protect investors at any cost.

Still, it has been reported that on quiet nights in the basement levels of SEC headquarters, staffers have seen Perello rifling through evidence cabinets and stuffing incriminating documents into the large side pockets of his ghostly REI shorts. Asked specifically about these eye-witness sightings, the SEC has repeatedly denied any knowledge! But we know better.

Happy Halloween from FinanciallyRegulated!

A final note. Also sued by the SEC were Darlene A. Bishop and Vincent G. Curry, who allegedly helped market the scam to investors. Like Lunn, both Bishop and Curry are real people.

Published by Jeremy L. Bartell

Financially Regulated is published by Jeremy L. Bartell, a long-time admirer of Wall Street and its interesting cast of regulators. Jeremy is an attorney with Bartell Law in Washington D.C. He represents financial professionals nationwide in Finra inquiries and investigations, Finra arbitration, securities employment disputes and registration and disclosure matters.